Fair Debt Collection Practices Act and Other Collection Issues

UPDATE ON THE FAIR DEBT COLLECTION PRACTICES ACT

AND OTHER DEBT COLLECTION ISSUES
2008 COMMERCIAL LAW UPDATE
Conference on Consumer Finance Law
December 4-5, 2008
The Skirvin Hotel, Oklahoma City, Oklahoma
MIKE VOORHEES & SHARON VOORHEES
SHELTON VOORHEES LAW GROUP
Attorneys at Law
7701 S. Western, Suite 201
Oklahoma City, OK 73139
405-682-5800
Fax: 405-601-6007
WWW.SHELTONLAWOK.COM


UPDATE ON THE FDCPA
THE FEDERAL TRADE COMMISSION ANNUAL REPORT 2008:
FAIR DEBT COLLECTION PRACTICES ACT
Each year the Federal Trade Commission reports to Congress on the Fair Debt Collection Practices Act.
The following is a summary of the details of this year's Report.
DEMANDING A LARGER PAYMENT THAN IS PERMITTED BY LAW: The FDCPA prohibits debt collectors
from misrepresenting the character, amount, or legal status of a debt. The types of complaints that fall
in this category include, for example, allegations that a collector is attempting to collect either a debt
the consumer does not owe at all or a debt larger than what the consumer actually owes. Other
complaints in this category allege demands for debts that have been discharged in bankruptcy. In 2007,
far more FDCPA complaints - 38.6%, representing 27,393 consumers - described this conduct than any
other. In 2006, 40.3% of FDCPA complaints reported that collectors engaged in these practices.
The FDCPA also prohibits debt collectors from collecting any amount unless it is "expressly authorized by
the agreement creating the debt or permitted by law." In 2007, 2.3% of the FDCPA complaints, or 1,637
consumers, alleged that collectors demanded interest, fees, or expenses that were not owed (such as
collection fees, late fees, and court costs) down from 3.4% in 2006.
HARASSING THE ALLEGED DEBTOR OR OTHERS: Under the FDCPA, debt collectors may not harass
consumers to try to collect on a debt. In 2007, 19.7% of FDCPA complaints the Commission received, or
13,989 consumers, alleged that collectors harassed them by calling repeatedly or continuously. Six
thousand five hundred and thirty-six consumers, or 9.2% of FDCPA complaints, claimed that a collector
had used obscene, profane or otherwise abusive language. One thousand four hundred and two
consumers, or 2% of FDCPA complaints, alleged that collectors called them before 8:00 a.m., after 9:00
p.m., or at other times that the collectors knew or should have known were inconvenient to the
consumer. Two hundred nineteen consumers, or 0.3% of FDCPA complaints, alleged that collectors used
or threatened to use violence if consumers failed to pay. As a proportion of total FDCPA complaints, the
complaint levels declined slightly from 2006 levels for repeated or continuous calling, obscene, profane
or otherwise abusive language; and calling before 8:00 a.m. or after 9:00 p.m. Threatening the use of
violence for failure to pay stayed at the same level as 2006.
THREATENING DIRE CONSEQUENCES IF CONSUMER FAILS TO PAY: The FDCPA bars debt collectors from
making threats as to what might happen unless the collector has the legal authority and the intent to
take the threatened action. Among other things, collectors threaten to initiate civil suit or criminal
prosecution, garnish salaries, seize property, cause job loss, have a consumer jailed, or damage or ruin a
consumer's credit rating. In 2007, 6.5% of FDCPA complaints, or 4,592 consumers, alleged that third-
party collectors falsely threatened a lawsuit or some other action that they could not or did not intend
to take, down from the 8.4% of complaints that alleged the same conduct in 2006. In 2007, 2.6% of
FDCPA complaints, or 1,876 consumers, alleged that such collectors falsely threatened arrest or seizure
of property, which was down slightly from 3% of FDCPA complaints in 2006.
IMPERMISSIBLE CALLS TO CONSUMER'S PLACE OF EMPLOYMENT: Under the FDCPA, a debt collector
may not contact a consumer at work if the collector knows or has reason to know that the consumer's
employer prohibits such contacts. By continuing to contact consumers at work under these
circumstances, debt collectors may put the consumers in jeopardy of losing their jobs. In 2007, 5.9% of
FDCPA complaints or 4,162 consumers, related to calls to consumers at work, virtually unchanged from
5.8% of FDCPA complaints in 2006.
REVEALING ALLEGED DEBT TO THIRD PARTIES: The FDCPA generally prohibits third-party contacts for
any purpose other than obtaining information about the consumer's location. Collectors calling to
obtain location information also are prohibited from revealing that a consumer allegedly owes a debt.
Improper third-party contacts typically embarrass or intimidate the consumer who allegedly owes the
debt and are a continuing aggravation to the third parties. Contacts with consumers' employers and co-
workers about consumers' alleged debts also jeopardize continued employment or prospects for
promotion.
In 2007, 3.8% of FDCPA complaints, or 2,672 consumers, alleged that debt collectors illegally disclosed a
purported debt to a third party, down somewhat from 4.3% in 2006. The third parties contacted include
employers, relatives, children, neighbors, and friends. This past year, 13.2% of complaints, or 9,361
consumers, alleged that collectors called a third party repeatedly to obtain location information about
the consumer, up from 12% in 2006.
FAILING TO SEND REQUIRED CONSUMER NOTICE: The FDCPA requires that debt collectors send
consumers a written notice that includes, among other things, the amount of the debt, the name of the
creditor to whom the debt is owed, and a statement that, if within thirty days of receiving the notice the
consumer disputes the debt in writing, the collector will obtain verification of the debt and mail it to the
consumer. Many consumers who do not receive the notice are unaware that they must send their
dispute in writing if they wish to obtain verification of the debt. Last year, 3.1% of the FDCPA complaints
to the Commission, or 2,182 consumers, alleged that collectors did not provide the required notice,
down somewhat from 3.9% in 2006.
FAILING TO VERIFY DISPUTED DEBTS: The FDCPA also mandates that, if a consumer submits a dispute in
writing, the collector must cease collection efforts until it has provided written verification of the debt.
Many consumers complained that collectors ignored their written disputes, sent no verification, and
continued their collection efforts. Other consumers reported that some collectors continued to contact
them about the debts between the date the consumers submitted their dispute and the date the
collectors provided the verification. Last year, 2.6% of all FDCPA complaints, or 1,848 consumers, alleged
that collectors failed to verify disputed debts, nearly identical to the figure of 2.5% in 2006.
CONTINUING TO CONTACT CONSUMER AFTER RECEIVING "CEASE COMMUNICATION" NOTICE: The
FDCPA requires debt collectors to cease all communications with a consumer about an alleged debt if
the consumer communicates in writing that he or she wants all such communications to stop or that he
or she refuses to pay the alleged debt. This "cease communication" notice does not prevent collectors or
creditors from filing suit against the consumer, but it does stop collectors from calling the consumer or
sending dunning notices. In 2007, 4.9% of FDCPA complaints, or 3,466 consumers, alleged that collectors
ignored consumers' "cease communication" notices and continued their collection attempts, up from
2.9% in 2006.
CASES
The case of Sembler v. Advanta Bank, 2008 U.S. Dist. LEXIS 59500, discusses the application of the
definition of debt collector. This case discusses several procedural issues not relevant to the FDCPA
issues. A Magistrate Judge issues a Report and Recommendation on the parties' FDCPA claims and
defenses. Plaintiff objects to the Report's recommendation that defendant Advanta Bank Corp's
("Advanta") motion to dismiss should be granted with respect to plaintiff's claims under the FDCPA.
Specifically, plaintiff takes issue with the Report's conclusion that Advanta is not a "debt collector"
pursuant to the FDCPA. The statute defines debt collectors as "[I] any person who uses any
instrumentality of interstate commerce or the mails in any business the principal purpose of which is the
collection of any debts, or (ii) who regularly collects or attempts to collect, directly or indirectly, debts
owed or due or asserted to be owed or due another." The portions of plaintiff's amended complaint that
he claims properly portray Advanta as a debt collector detail Advanta's specific attempts to recover its
debt from him. By its terms, the FDCPA . . . does not restrict the activities of creditor seeking to collect
their own debts. Any business that extends credit will inevitably, and perhaps even "regularly" become
involved in the collection of debts.
The one situation "recognized by the FDCPA when a creditor will be deemed a debt collector ... exists
when the creditor attempts to collect its own debts by using any name other than his own. Plaintiff
argues that because Advanta hired debt collectors who used a name other than "Advanta" in the
process of attempting to collect the debt, Advanta is guilty of attempting to collect its own debts by
using a name other than his own. However, in cases where a creditor collected its own debts by using a
different name, thus implying that a third party was the debt collector, the creditor controlled almost all
aspects of debt collection ... or used an alias. Plaintiff has made no allegation that Advanta controlled
any of the other defendants, or used them as an alias.
Plaintiff also claims that the other defendants acted as agents of Advanta and that Advanta can be held
vicariously liable if it is deemed to be a 'debt collector' under the FDCPA. This agency argument also
fails. The plaintiff has not cited, nor is this Court aware of, any cases wherein a creditor that approve of a
debt collector's practices is transformed into a 'debt collector' under the FDCPA.
The case of Robertson v. GE Consumer Finance, Inc., 2008 U.S. Dist LEXIS 91263, deals with acquisitions
and mergers, and who is not a debt collector. In May 1978, the plaintiffs, Danny and Gay Robertson
opened a credit card account with J.C. Penney. In December 1999, the plaintiffs' account was acquired
by Monogram Credit Card Bank of Georgia ("Monogram"). On February 7, 2005, Monogram merged
with GE Capital Consumer Card Company, with the resulting company becoming GE Money Bank
("GEMB" or "GE"), which is the current owner of the Robertson's account that is the subject of this
lawsuit. GE Money Bank is a wholly-owned subsidiary of defendant GE Consumer Finance, Inc. On
October 20, 2004, the plaintiffs received a call from GE regarding their account. The representative
informed Mr. Robertson that $222.22 was owed on the account. Mr. Robertson paid the entire balance
of $222.22 over the phone by debit card, and during that conversation he instructed the representative
to close the account. However, the payment was not correctly posted to the plaintiffs' account and they
were forced to go through several months of collection activity by various debt collection entities. GE,
representative Martha Koehler, has conceded that the Robertsons' account was paid in full on October
20, 2004, and that proof of the Robertsons' payment was contained in contemporaneous account
records maintained by GE.
GEMB's first contention is that it is not a "debt collector" as defined by the FDCPA and thus the plaintiffs'
claims in this regard fail. There is no dispute that GEMB is a bank and owned the debt at issue here after
February 7, 2005. the plaintiffs contend that collection efforts on the debt began shortly after October
2004 when the Robertsons' account was not properly credited with the payoff. They therefore argue
that when GEMB acquired the debt in February 2005, the account was allegedly in default, thus making
GEMB a debt collector. This is where the plaintiffs' argument derails.
Monogram owned the debt in October 2004. It merged with GEMB in February 2005. Neither
Monogram nor GEMB are debt collectors as defined by the FDCPA.
Even if a lawyer handles a few debt collection cases for small business clients, he may not be a debt
collector. The case of Gauntner v. Doyle, 554 F.Supp. 2d 779 (N.D. Ohio) discusses some factors that led
the Court to decide that Duane Doyle was not a debt collector.
In the complaint, the Gauntners allege facts supporting the allegation that Doyle is a debt collector.
Specifically, they note that Doyle's letter paid careful attention to identify said letter as an attempt to
collect debt, noting in particular the letter's compliance with the statutory requirements of 15 U.S.C
1692e(11). That provision makes it a violation for a debt collector to fail to disclose in the initial written
communication with the consumer . . . that the debt collector is attempting to collect a debt and that
any information obtained will be used for that purpose. 15 U.S.C. 1692e(11). Doyle's demand letter
contained similar language: This is an attempt to collect a legitimate debt. Any information received
from you will be used to further our collection efforts. In light of this similarity, the Gauntners point to
Doyle's adoption of the statutory language as evidence that he is a debt collector under the FDCPA.
Doyle does not dispute that he used this language.
As noted, Doyle does not dispute the Gauntners' factual allegations. Instead, he offers his own evidence
to show that he does not, and never has, "regularly" engaged in collection activities. In support of this
statement, he refers to several factors. Specifically, he points to his affidavit in which he attests that he
does not regularly represent collection cases and has never represented a collection agency. He further
attests that the few collection cases that he has handled are for small business clients on a casual basis.
In addition, he refers to an affidavit prepared by his legal secretary, his sole employee. In her affidavit,
she attests to statistics that she has compiled indicating that over the past four years, Doyle has pursued
4-9 debt collection matters per year, constituting an average of 6.8% of his overall practice during that
time period. Further, she notes that one client is responsible for 4-5 collection matters per year,
although the majority of the representation of that client is for civil matters not related to collections.
The Gauntners do not dispute any of these facts.
These facts make it clear that as a matter of law, Doyle's limited amount of practice in debt collection
activities does not subject him to the FDCPA. The fact that Doyle sent a demand letter that at least
partially complied with the FDCPA does not change this legal determination.
Nor does the fact that Doyle lists "collections" as one of seven services on his website change the
outcome. Doyle's website merely states that he will pursue collections based on one third of the
recovery and that he reserves the right to not litigate a collection all the way to judgment. He provides
absolutely no information regarding the nature of his services. Nor does he indicate what experience he
has, if any, pursuing collections.
The Sixth Circuit has previously ruled that an attorney and his law firm did not regularly collect debts so
as to constitute 'debt collectors' under the FDCPA where only 2% of the firm's overall practice consisted
of debt collection cases, the firm did not employ any individuals full-time to collect debts, and only 7.4%
of the individual attorney's practice consisted of debt collection cases. The Sixth Circuit further noted
that in the majority of the attorney's debt collection cases, he represented debtors and thus was not
competing with lay debt collectors. Further, the attorney represented a number of business clients who
were the source of a number of his debt collection cases. In light of these facts, the Sixth Circuit affirmed
the district court's determination that the attorney and his law firm were not debt collectors where
plaintiffs failed to offer evidence showing that the revenues received from debt collection activities
constituted a great portion of the overall revenues, and failed to show that the law firm or the attorney
handled debt collection cases as part of an ongoing relationship with a major creditor or business client
with substantial debts for collection. One district court in this circuit has expanded upon the factors by
considering whether an attorney had advertised collection services on his website.
The case of Hill v. Javitch, 574 F. Supp. 2d 819 (S.D Ohio), discusses a situation in which the debt
collector sent the right Summons and Petition to the wrong address. This lawsuit filed under the Fair
Debt Collection Practices Act has an unusual set of facts. On April 2, 2007 Defendant Javitch, Block &
Rathbone, LLP ("Javitch") filed a suit in the Hamilton County Municipal Court on behalf of Midland
Funding, LLC to collect a past due account in the amount of $10,681.69. The defendant named in the
complaint and who allegedly owed money to Midland Funding was "Scipio Hill." On April 4, 2007, the
Municipal Court mailed a copy of the summons and complaint to Scipio Hill at 5815 Robison Road,
Cincinnati, Ohio by certified mail. The postal service returned the summons and complaint as unclaimed.
The same day, the municipal court sent the summons and complaint to Scipio Hill at the Robison Road
address by ordinary mail.
The summons and complaint did not reach Scipio Hill, however. Instead, the summons and complaint
were delivered to Plaintiff Lawrence Hill, who apparently lives or lived at 5815 Robison Road. Plaintiff
and Scipio Hill are two different people and Plaintiff has never used the name "Scipio Hill." Despite the
fact that the summons and complaint were not addressed to him, and that he was not named as a party
in the complaint, on May 15, 2007, Plaintiff filed an answer through counsel denying all of the
allegations in the complaint. Plaintiff also averred that "he is not the Debtor identified as Scipio Hill." On
June 1, 2007, Javitch voluntarily dismissed Case No. 07CV008899 without prejudice.
On May 14, 2008, Plaintiff Lawrence Hill filed a complaint against Javitch asserting claims for various
violations of the FDCPA. Specifically, the complaint alleges that Javitch violated 15 U.S.C. 1692(g) by
failing to identify itself as a debt collector in the state court complaint and by failing to include a Fair
Debt Validation Notice. It is not apparent to the Court that Javitch's alleged failure to identify itself as a
debt collector constitutes a violation of 1692g, since no subsection sets forth that requirement.
On June 25, 2008, Javitch filed a motion to dismiss the complaint. In its motion, Javitch asserts a number
of grounds for dismissal of the complaint, including:
1. the complaint fails to allege that the collection activity at issue arose from a "debt," as defined by the
FDCPA;
2. Plaintiff lacks standing to assert a claim under the FDCPA because he is not a "consumer" within the
meaning of the Act:
3. the complaint fails to state a claim for a violation of 1692g because pleadings in civil actions are
exempt from the Fair Debt Validation Notice requirements;
4. filing a lawsuit to collect a debt without documentation supporting the claim does not constitute a
violation of the FDCPA;
5. misaddressing a summons does not constitute a violation of the FDCPA;
6. Plaintiff's claims are barred by the FDCPA statute of limitations; and,
7. Plaintiff's claim for slander of credit is not ripe for adjudication. Alternatively, Javitch moves the Court
to order Plaintiff to file a more definite statement indicating when he received the state court complaint
so that the issue of the statute of limitations can be conclusively resolved.
The Court agrees with Javitch that certain of Plaintiff's complaint fails as a matter of law. First, as Javitch
accurately argues, a summons and complaint are not considered "initial communications" subject to the
Fair Debt Validation Notice requirements. Therefore, Javitch was not required to comply with 1692g(1)
when it filed the state court summons and complaint at issue in this case. Similarly, the plain language of
1693e(11) exempts pleadings filed in legal actions from the requirement to notify the consumer that
the communication is from a debt collector. Therefore, Javitch was not required to provide any notice in
the summons and complaint that the communication was from a debt collector.
Javitch argued that the complaint fails to state a claim under 1692f(1) because: it fails to allege that it
collected any amount of money from Lawrence Hill; it fails to allege that Plaintiff was sued in state court;
it fails to allege that a judgment was ever taken against Plaintiff; and it fails to allege that Plaintiff was
ever in any jeopardy of having any of his property attached. Under the facts alleged in the case, the
Court agrees with Javitch that the complaint fails to state a violation of 1692f(1). In this case, as Javitch
correctly argues, the facts alleged show that it was not attempting to collect any fees, or any amount of
money for that matter, from Plaintiff Lawrence Hill. Rather, it sued Scipio Hill but had the summons and
complaint delivered to the wrong address.
The case of Hester v. Graham, Bright & Smith, P.C., 2008 U.S. Dist. LEXIS 16844, lists several factors
which led the Court to decide that the Defendants were debt collectors. In the two (2) years before this
lawsuit was filed, the Defendants attempted to collect debts on 450 occasions for four (4) clients. They
filed 133 lawsuits and mailed 29 demand letters for American Honda Finance; filed 46 lawsuits. Both
GBS and Shytles qualify as debt collectors under the FDCPA. GBS is a law firm consisting of eight
attorneys and five or six support staff. Shytles has practiced as an attorney for GBS since 1983, and he
serves as vice president of this professional corporation. In the two years before this suit was filed, from
January 28, 2002 until January 28, 2004, GBS and Shytles attempted to collect debts on 450 occasions
for four clients. They filed 133 lawsuits and mailed twenty-nine demand letters for America Honda
Finance Corporation; filed forty-six lawsuits and mailed 239 demand letters on behalf of Aqua Finance;
filed two lawsuits for The Oaks Bank & Trust Company; and filed one lawsuit for CU Recovery, Inc.
Shytles spent approximately twenty-five percent of his time on consumer debt collection during this
time, and the 182 debt collection lawsuits filed by GBS represented between one-third and one-half of
the lawsuits he filed. GBS assigned an attorney and a secretary to this debt collection work. Even more,
GBS represented two of its four creditor clients over a period of at least five years. Finally, all of the
debts that GBS and Shytles attempted to collect for their clients are considered consumer debts for
FDCPA purposes, and are governed by the Act.
The case of Fouche v. Shapiro & Massey, LLP, 575 F. Supp. 2d 776 (S.D. Miss. 2008) contains a detailed
discussion of the difference between a debt collector and an attorney merely enforcing a security
interest in real property through a non-judicial foreclosure.
Plaintiff has sued Washington Mutual, Shapiro & Massey, and attorney Gary Massey for alleged wrongs
in connection with their efforts to foreclose on his home in December 2006 and January 2007. Plaintiff
has alleged claims against defendants for violation of the Fair Debt Collection Practices Act, and for
misrepresentation, defamation, intentional and negligent infliction of emotional distress and breach of
fiduciary duty. Defendants seek summary judgment on all of plaintiff's claims.
Fouche suffered a disabling back injury. Being unable to work, his sole income was social security
disability payments, which were inadequate to allow him to keep up his mortgage payments, and he
became in default on his mortgage.
In April 2003, Washington Mutual retained Shapiro & Massey to foreclose on plaintiff's home. Pursuant
to that representation, Gary Massey sent a letter to Fouche on April 9, 2003 advising that he was about
to initiate foreclosure of the property. The letter was purportedly sent to satisfy the disclosure
obligations imposed upon Massey by the FDCPA. On April 28, Massey, as Substituted Trustee, sent
Fouche the Substituted Notice of Trustee's Sale, advising that a notice of foreclosure would be published
May 1, May 8, and May 15, with the sale to take place May 22, 2003. Fouche did not respond to dispute
the debt or request debt verification. However, on May 20, 2003, plaintiff filed a Chapter 13 bankruptcy
petition, which stopped the foreclosure sale. A plan was entered providing for monthly payments on the
mortgage, but on January 28, 2004, the bankruptcy case was dismissed on account of plaintiff's failure
to continue making the payments required by the plan.
On May 16, 2006, Massey again wrote to Fouche' that he had been retained to foreclose on the
property, and provided him all the FDCPA disclosure, and on May 18, 2006, he wrote advising Fouche'
that notice of foreclosure would be published May 26, June 2, and Jun 9, 2006, with the sale to take
place on June 16, 2006. Fouche' did not respond to dispute the debt or request debt verification.
However, on June 13, Fouche' again filed for bankruptcy protection, which stopped the foreclosure sale.
Washington Mutual objected to plaintiff's Chapter 13 plan, claiming that Fouche' had understated the
amount of his arrearage. In response, the bankruptcy court entered an order which allowed Washington
Mutual's claim for an arrearage of $49,687.55; provided that if plaintiff fell more than sixty days behind
in his payments, Washington Mutual could begin foreclosure on the property following notice and cure;
and providing that if his bankruptcy case were dismissed for any reason, Fouche' would be barred from
filing a new bankruptcy case for a period of 180 days from the dismissal order.
On December 18, 2006, the bankruptcy court dismissed plaintiff's bankruptcy case for failure to make
plan payments. On December 27, 2006, Massey sent Fouche' a letter advising that Shapiro & Massey
had been retained to initiate foreclosure proceedings. This letter, like each of the previous letters,
recited at the outset that it constituted 'NOTICE REQUIRED BY THE FAIR DEBT COLLECTION PRACTICES
ACT, 15 USC 1692, ET SEQ." The letter then purported to provide disclosures required by FDCPA,
including the amount of the debt and the identity of the creditor, and informed Fouche' of his right
under the FDCPA to dispute the debt, or any portion thereof, within thirty days of his receipt of the
letter. the letter explained that Shapiro & Massey was not required to wait thirty days before initiating
foreclosure proceedings, and that if it did begin foreclosure proceedings, Fouche' retained the right to
dispute the debt within thirty days of receipt of the letter. It further recited that if Fouche' did "request
proof of the debt, or any portion thereof ... within thirty days ..., the Fair Debt Collection Practices Act
requires us to suspend our efforts to foreclose the mortgage on the property, even if we have already
initiated foreclosure proceedings, until we mail you the information validating the debt ...." The letter
recited that it was not a demand for payment, but was merely intended to provide notice that a
"foreclosure proceeding will be commencing to sell the property to satisfy some or all of the debt owed
our client;" however, it also included a paragraph advising without elaboration that if Fouche' paid the
amount shown as being owed, an adjustment might be necessary to account for interest, late charges
and other charges that might have accrued following the date of the letter. The letter concluded:
PURSUANT TO THE FAIR DEBT COLLECTION PRACTICES ACT, YOU ARE ADVISED THAT THIS OFFICE IS
DEEMED TO BE A DEBT COLLECTOR. ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE.
Fouche' initially responded to Massey's letter of December 27 with a letter dated January 3, 2007
directed to Shapiro & Massey in which he disputed the validity of the debt. Fouche' requested that
Massey provide an itemized statement 'showing how the balance on my loan has grown to
$134,110.32," including showing how much of that amount was penalties and interest; he also
requested that Massey 'inform [him] of the amount in arrears that is actually owed to bring the loan
current."
The letter was received by the office of Shapiro & Massey on Friday, January 5, but was not seen by
Massey until Monday morning, January 8, 2007. The very same day, Massey wrote a response letter to
Fouche', providing a breakdown of the total amount due on the loan through that date. The letter
recited that the amount due varied from day to day because of additional attorney's fees and cost and
other charges, that Fouche' should call the attorney's office before sending any funds to verify he was
sending the correct amount, and that funds sent to pay off the loan must be in the form of a cashier's
check or certified funds payable to Washington Mutual.
On the same day, before receiving Massey's letter responding to his January 3 letter, Fouche' wrote a
second letter to Massey, in which he again wrote that he disputed the debt and declared that he wanted
"proof of the debt," and specifically, "an annual month to month statement showing the accumulation
of this sum total that you say I owe." He reiterated his request that Massey advise him of "the amount
of money in arrears that is actually owed to bring the debt current." In addition, Fouche' undertook to
remind Massey of his obligation under the FDCPA to suspend the efforts to foreclose the mortgage
"until you mailed me the information and figures providing proof of the debt."
On January 11, 2007, after receiving Massey's January 8 letter, Fouche' again wrote to Massey, claiming
that the figure asserted by Massey as the amount owed was incorrect. Fouche' wrote, "I still dispute the
validity of this debt," and asked that Washington Mutual do a month-to-month accounting of his
payment history from January 2002 to January 2007, including all payments received from the
bankruptcy court. Fouche' maintained that he had not been given proper credit for his payments
through the bankruptcy court, questioned a 132.85 charge for "NSF/Other Fees," and asked to be given
a "correct figure that I need to pay to bring my loan current." Fouche' again questioned whether Massey
had suspended foreclosure efforts, insisting that he was required to do so inasmuch as neither Massey
nor Washington Mutual had yet to provide him with the requested "proof of the said debt."
On January 16, Massey responded to Fouche's letters, giving him the requested reinstatement figures
for the loan, advising that funds for reinstatement should be in the form of a cashier's check or certified
funds made payable to Shapiro & Massey L.L.P., and stating that upon receipt and verification of funds,
"our office will dismiss the foreclosure action."
On January 25, 2007, the day before the foreclosure sale was scheduled to occur, Fouche' sought and
obtained an ex parte injunction from the Hinds County Chancery Court to stop the foreclosure.
Subsequently, however, on March 22, 2007, after Washington Mutual filed a response and after a
hearing was held before the chancellor, an order was entered dissolving the injunction and allowing
Washington Mutual to resume foreclosure. On March 29, Massey wrote to Fouche' that he was initiating
foreclosure proceedings, sending him the Notice of Sale and advising that the sale was scheduled for
April 24, 2007. On April 23, 2007, Fouche' filed a Chapter 7 bankruptcy petition, again stopping the
foreclosure from proceeding.
Two weeks later, on May 4, 2007, Fouche' filed the present lawsuit against Washington Mutual, Shapiro
& Massey and Gary Massey, alleging violations of the FDCPA, and various state law claims.
The prohibitions of the FDCPA apply only to "debt collectors." Washington Mutual has moved for
summary judgment, arguing that as a matter of law, it is not a "debt collector," and that even if the
Massey defendants were debt collectors - which it contents they were not - it cannot be held vicariously
liable for their acts. This is correct.
The Massey defendants argue in their motion that plaintiff has no valid FDCPA claim against them
because they are not "debt collectors" and because their actions toward plaintiff did not constitute
"debt collection" but rather were only actions to enforce the mortgagee's security interest.
Whether the Massey defendants are "debt collectors" under the FDCPA, as alleged by plaintiff, requires
consideration of the general nature of their law practice. (in determining whether party is "debtor
collector," focus "is not on the events of the particular transaction but on the principal purpose of the
defendant's business and/or the defendant's regular activities")
Plaintiff does not argue that the "principal purpose" of Shapiro & Massey is the collection of debts, but
he does contend that the law firm, and Gary Massey, regularly collect or attempt to collect debts, and
hence qualify as debt collectors. However, an affidavit by Gary Massey describing the nature of his and
the firm's practice belies plaintiff's assertion. Massey declares:
My law practice and that of Shapiro & Massey, LLP, is exclusively centered upon the representation of
mortgage lenders or servicers in enforcing security interests securing real estate loans. Approximately
80% of my practice and that of Shapiro & Massey, LLP, involves foreclosing on deeds of trust, primarily
through non-judicial foreclosures and occasionally through judicial foreclosures. Incidental to my
foreclosure practice, I can estimate that approximately 20% of my practice involves work for these same
mortgage lenders or servicers in bankruptcy proceedings related to the enforcement of deed of trust
security interests.
My practice and that of Shapiro & Massey, LLP, does not involve the collection of the debt underlying
the security interests being foreclosed nor the collection of deficiency remaining following a foreclosure.
To the best of my recollection, neither I nor the firm of Shapiro & Massey, LLP, have been requested to
assist in the collection of a deficiency balance in three or four years.
Whether a party 'regularly' attempts to collect debts is determined, of course, by the volume of
frequency of its debt-collection activities. If the volume of a person's debt collection services is great
enough, it is irrelevant that these services only amount to a small fraction of his total business activity;
the person still renders them 'regularly.'
In contrast to non-judicial foreclosures, which are intended only to enforce the lender's security interest
and not to collect the underlying debt, a typical judicial foreclosure usually does involve seeking a
personal judgment against the debtor for deficiency and hence would likely amount to debt collection.
In sum, plaintiff has not presented evidence from which a reasonable jury could find the Massey
defendants regularly collect or attempt to collect, directly or indirectly, debts owed or due or asserted
to be owed or due another.
The case of Maynard v. Cannon, 2008 U.S. Dist. LEXIS 46768 (N.D. Dist. Utah 2008) also discusses the
difference between a debt collector and an attorney merely enforcing a security interest in real estate
through a non-judicial foreclosure. Household Finance Corporation made a mortgage loan to Maynard in
the amount of $131,536.06. The parties entered in to a "Loan Repayment and Security Agreement" that
gave Household a security interest in the Maynard's property. Maynard executed a Deed of Trust
identifying herself as the Trustor and Borrower and Household as the Beneficiary and Lender. The Deed
of Trust granted Household a security interest in the property and referenced the loan agreement.
Defendant Bryan Cannon P.C. was hired by Household Finance Corporation to collect on Maynard's
mortgage debt, which he was told was in default. On March 17, 2004, Cannon received copies of the
parties' agreements, a HUD1/Net Settlement Statement, a "101" form that contained information
regarding the loan, and an Attorney Foreclosure Referral from Household instructing him to proceed
with foreclosure. Cannon agreed to conduct a non-judicial foreclosure under the Deed of Trust. Cannon
was not asked to collect against Maynard personally.
On March 18, 2004, Household executed a Substitution of Trustee appointing Bryan W. Cannon as the
Trustee of the Deed of Trust. On March 22, 2004, Cannon recorded this with the Sale Lake County
Recorder. Also on March 22, 2004, Cannon filed a Notice of Default with the Sale Lake County Recorder.
The next day, Cannon mailed copies of the Substitution of Trustee, the Notice of Default, and an FDCPA
notice to Maynard. the Notice of Default identified the secured obligation as the "Note for the principal
sum of $131,536.06," the original principle amount of the mortgage, and stated that the default was a
failure to make "monthly payments in the total sum of $10,109.57, together with costs of foreclosure up
to $1,500.00."
On April 5, 2004, Cannon received a fax from Mountain America Credit Union requesting a payoff from
Household. This fax included an authorization for Cannon's office to obtain a payoff and a "Borrower
Signature Authorization," which authorized Mountain America to verify Maynard's mortgage
information. On April 6, 2004, Cannon sent an email to Household which referenced the loan and stated:
"Mountain America Mortgage Company is helping the customer refinance, we have written
authorization from Judith Maynard to get a payoff on her loan, please provide ASAP." On April 6, 2004,
Maynard received a copy of a payoff statement stating that the amount to payoff the account in full was
$147,424.95.
On April 7, 2004, Maynard wrote to Cannon disputing the debt in its entirety and listing several
problems that she had encountered with Household Finance. She stated that she had been trying to
refinance the mortgage for years and had to get the Attorney General's office involved to get a payoff
amount because Household Finance would not provide her with the amount. Maynard requested that
Household follow through with their agreement to expunge her negative credit marks and extend the
deadline for her credit union to be able to provide her with a mortgage loan to pay off Household. She
also requested several items of information, such as copies of all documents provided to her when she
obtained the loan, a complete accounting of her payments, and documents supporting all of the payoff
amounts she was given along the way that were above the original mortgage loan.
On April 12, 2004, Cannon replied by letter acknowledging that he had received her letter and enclosing
the documents his office had in its possession regarding the mortgage and foreclosure. Cannon affirmed
the original balance of the mortgage and informed Maynard that he was forwarding her request for
other information to Household Finance so that they could provide those details. On this same day,
Cannon sent Maynard's letter to Household and requested that Household advise him "with a response
to the letter, a pay-off statement on the account," and other information.
On April 15, 2004, Cannon's office notified Household that it has not received a payoff statement and
again requested a payoff statement from Household. Despite making multiple requests, Cannon's office
never received a payoff statement for Maynard's Loan or an account of Maynard's payments. Maynard,
however, received multiple payoff letters from Household, including at least one between April 7 and
April 19, 204.
On April 19, 2004, Maynard wrote another letter to Cannon stating that his response was inadequate
and explaining why she required a present mortgage balance and payment history. Cannon forwarded
Maynard's second letter to Household. Household told Cannon that it was dealing directly with Maynard
and that it would take care of it. Household told Cannon that it did not want Cannon to communicate
with Maynard any further. Cannon had no further communication with Maynard.
Maynard and Mountain America, however, continued to have telephone conversations directly with
Household. At the end of April 2004, Maynard negotiated an agreement whereby Household agreed to
accept $117,00 (sic) as payment in full on the loan. Cannon was not informed by anyone that Household
and Maynard had reached a settlement until June, 2004. Cannon recorded a cancellation of Notice of
Default in the County Recorder's office on June 25, 2004.
Defendant argued that its action to initiate a nonjudicial foreclose of Maynard's Deed of Trust were not
subject to the FDCPA. Several courts have found that attorneys foreclosing on mortgages fell under the
requirements of the FDCPA. All of these foreclosure cases, however, appear to involve judicial
foreclosures whereas the present case involves a nonjudicial foreclosure. But judicial foreclosure cases
against an individual property owner are distinguishable from a nonjudicial foreclosure against the
property.
In Rosado v. Taylor, the court found that "[s]ecurity enforcement activities fall outside the scope of the
FDCPA because they aren't debt collection practices." 324 F. Supp. 2d 917, 924 (N.D. Ind. 2004).
Also, in Hulse v Ocwen Federal Bank, FSB, 195 F. Supp. 2d 1188 (D. Or. 2002), the court articulated the
distinction between foreclosing a trust deed from the collection of funds from a debtor on the basis that
"with a trust deed, the trustee possesses the power of sale which may be exercised after a breach of the
obligation for which the transfer in trust of the interest in real property is security." Some courts engage
in a discussion of whether the party at issue qualifies as a debt collector under the general debt collector
provision even if the party is only enforcing a security interest.
There is no evidence in this case that Defendant falls within the general provisions of the definition of
debt collector. There is no evidence as to the frequency of Defendant's security enforcement or debt
collection practices. In this case, Household hired Defendant for the limited purpose of non-judicially
foreclosing the Deed of Trust. Household did not sell or assign or even transfer to Defendant the debt
evidenced by the Note. Nor did Household authorize Defendant to negotiate Maynard's debt with her.
Household and Maynard communicated directly even after Defendant filed the Notice of Default.
Defendant only agreed to enforce a security agreement by commencing a nonjudicial foreclosure of the
Deed of Trust. Therefore, Defendant's activities fall outside the FDCPA's general provisions.
Plaintiff also argues that in a mortgage foreclosure action, the Tenth Circuit held that a mortgagor had
standing to sue under the FDCPA for alleged violations of the FDCPA by the attorney for the mortgagee.
Robey v. Shapiro, Marianos & Cejda, L.L.C., 434 F.3d 1208 (10th Cir. 2006). In Robey, however, the
defendants filed a judicial foreclosure action against the plaintiff that requested a money judgment,
judgment of foreclosure, and additional relief including attorney's fees. The plaintiff claimed that the
request for attorney's fees violated the FDCPA. The Tenth Circuit first determined that by claiming that
the defendants attempted to collect fees not permitted under state law the plaintiff had alleged an
injury in fact under the FDCPA. The court, after turning to the merits, affirmed dismissal of the FDCPA
claims because Oklahoma law permitted the recovery of a reasonable attorney's fee in a mortgage
foreclosure action. Id. at 1213.